About ten years ago I acquired all the various versions of the domain names relevant to the trading name used by my business. These domain names have always been held in my own name, although the business is now run through a company. I have just had an offer for the company and one of the domain names, which values the domain name at £3 million. How will the Taxman tax the profit on the sale of the domain name: as income profits or a capital gain?
If we assume the full £3 million represents the profit on the sale of the domain name, as the original purchase price was probably very small, the difference in the tax payable under an income or capital treatment will be approximately £660,000 (£3 million x 22%). This is because gains are currently taxed at 18%, and an income profit would be taxed at your highest personal income tax rate of 40%.
Your intention when acquiring the domain names was to protect the trading name of your business, not to sell on those domain names at a profit. You were holding the domain names as an investment, not as stock to be traded. The profit on the sale of the domain name should be treated just like the sale of any other investment; as a capital gain. Report the sale on the capital gains tax pages of your tax return, and provide as much information as possible about the original purchase cost and sale value in the blank space on those tax return pages. You may be able to claim entrepreneurs’ relief on up to £1 million of the gain if the sale of the domain name is associated with the sale of your company. The rules for this tax relief are complex, so please discuss the details of the deal with us first.